The Euro: A Threat To Europe’s Peace?

The preservation of the Eurozone is fast becoming the greatest source of tension between European citizens since the Second World War. To preserve the unity that guaranteed European peace for the past half-century, it may soon be necessary to abandon the doomed attempt at monetary integration in its current form.

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At a press conference that European Union officials held earlier this year just after the union received the Nobel Peace Prize, a journalist with a sense of humour asked if Brussels also expected to win the Nobel Prize for Economics. The journalist might have been joking, but he touched on a key point which has been illustrated again this week as a wave of demonstrations, strikes and riots roiled the continent. For it is the failure of the European Union’s economic policy which is now the greatest threat to Europe’s peace.

Since the Second World War, the two greatest guarantors of peace in Europe have been NATO and the growing integration of Western Europe’s economies. What we now know as the EU started life in 1950 as the European Coal and Steel Community, an ambitious project to create a single market in coal and steel.

The point of the ECSC was to make France and Germany so dependent on each other for these vital resources of war that it would be inconceivable for them to fight one another again. A country cannot fight a modern war against its main supplier of steel. Gradually, this principle was extended to other sectors of the economy across Europe as well.

This not only helped to drive Europe’s post-war economic boom, but also helped to solidify Europe’s peace. Economic competition within the framework of European institutions could sometimes fuel resentment, but it also provided a common set of rules within which conflicts could be resolved peacefully. It also made all of Europe’s economies so dependent on one another that war became inconceivable.

When the Eurozone was formed, the principle of integration expanded to include the financial sector as well. Even though banks within the Eurozone were guaranteed only by their national sovereign, and that sovereign itself was responsible for its own debt, the financial myths that a euro was as safe in a Greek bank as it was in a German bank, and that it was just as safe to lend to either of these nations, took hold.

The debt crisis has decisively shattered this myth, and in so doing has dealt a huge blow to the principle of deepening economic integration across Europe. Financial integration has collapsed as banks in safe countries back away from the periphery, and banks in peripheral countries find it impossible to fund themselves on the open market. As the easy money that flowed before the financial crisis has dried up, under-capitalised banks have to rely on their national governments to bail them out. When those governments themselves become unable to fund themselves, they must submit to humiliating bail-out agreements.

On the other hand, the continued existence of the Eurozone has also required enormous sacrifices from Irish, Greek, Spanish and Portuguese citizens. While German taxpayers view themselves as stoically handing over hundreds of millions of euros to beach-loving Greeks, citizens of the peripheral nations are chafing at the savage cuts in spending and social services that are being imposed in return. Posters on the streets of Athens and Lisbon in recent months depicting Angela Merkel as a Nazi catch the flavour of their complaints.

The architects of the Eurozone overreached themselves. By trying to take economic integration in Europe too far, they created an economic situation which is now driving Europeans apart. And the remedial measures now being applied by European leaders could well make things worse.

Preserving the Eurozone requires large transfers of wealth from some countries to others, and will probably require them for a long time to come. Even proposals such as the banking union which European leaders are fleshing out agonisingly slowly, whatever their other details, involve at their heart the creation of a mechanism that will allow banks in the weaker countries to be rescued by the taxpayers of the rich countries. This at least breaks the destructive cycle of bust banks forcing bust governments even further into penury, but by institutionalising wealth transfers it risks sparking widespread protest when taxpayers cotton on. Whether voters in the rich countries will allow this situation to persist indefinitely is far from clear, meaning the whole edifice is only ever one election away from collapsing.

By creating an economic situation that causes so much resentment, the preservation of the Eurozone is fast becoming the greatest source of tension between European citizens since the Second World War. Not just anti-Eurozone sentiment but anti-European sentiment is on the rise across the continent, and it could yet lead to Britain or other countries leaving the union altogether. To preserve what we can of the economic and political unity that guaranteed European peace for the past half-century, it may soon be necessary to abandon this doomed attempt at monetary integration in its current form altogether.

21 thoughts on “The Euro: A Threat To Europe’s Peace?”

I disagree Andrew and would actually argue the opposite case. Far from endangering peace, the Eurozone crisis was the crisis which perhaps was needed to convince Eurozone countries that a united currency is not enough, and a united fiscal unit is necessary. The US needed the threat of a reenergised British Empire to force the states from confederation to federation, maybe what the EU needed was the threat of economic collapse. Far from driving Europeans apart, the Eurozone crisis is shoving them together. The suggestion that the EU is ‘one election away from collapsing’ is ridiculous. We saw in the election of Hollande pretty much as far as the electorate is likely to go, and he has yet to do almost anything different from Sarkozy in reference to the EU. It is simply too important to them to leave. Even Britain (possibly the most Eurosceptic EU state), despite Tory rebellion after Tory rebellion is staying on course, and with what seems to be a Labour landslide coming soon pro-EU sentiment is still strong.

That’s a very sanguine view of the process of fiscal integration, which has barely begun. I believe that it will collapse before it reaches anything like the level of integration that the U.S. achieved in the 1780s because the political basis for it simply doesn’t exist in the member-states. The Americans all spoke the same language and there was a basis for them to cooperate to meet external challenges which weren’t just economic but were actually to do with physical security; hence they were subject to possibilities and imperatives that don’t apply to the EU at present.
Also, it’s not the EU itself that I argue is one election away from collapsing, but the process of fiscal integration. Likewise, clearly I’m not arguing that France will leave the EU – or even the Eurozone – but that the Eurozone is going to have to be restructured into something much smaller and less ambitious if it’s going to be made to continue to work. I find it odd that you can argue that the Eurozone crisis is driving European people together. It isn’t. It’s forcing their governments into Faustian pacts to attempt to preserve monetary union, and these pacts will eventually collapse because they are economically illogical and politically tenuous. They would have collapsed already if it weren’t for the ECB, but monetary policy will eventually run out of time.
As for the UK, I think you underestimate the danger of a rash decision on the part of a British government – and Labour are committed to a referendum, as are the Tories, so you find no comfort there.

Andy G I’m not saying that anything will happen now and that anything will happen fast. It will be slow and difficult. However, the imperatives are there and will continue to grow. The EU as an economic and political block is getting stronger, not weaker, as the crisis drives on. Fiscal integration is almost an inevitability among the core states (France, Germany, Belgium, the Netherlands) and will continue to spread to countries that really don’t have any other choice. The agreements will not collapse, they will be layered and layered as the strongest states leverage the weaker ones into more integrated agreements. The way to survival and success is to push on, not to run away and national governments across the Eurozone know that, they just can’t politically admit it. As for the UK, U-turns are becoming a symbol of today’s government, and Labour is far too pro-EU to let British xenophobic sentiment push them away from the project entirely.

Peter Kelly Andy G Where I disagree with you is that I believe that democracy will intervene at some point during that slow and difficult process that you talk about. The reason that governments can’t politically admit the need for fiscal integration is that the idea will be anathema to the majority of people in most member-states. If they can’t even politically admit it then it’s beyond me how they’re expected to implement it on a sustainable basis.

Andy G Desperate times call for desperate measures. The EU has already orchestrated technocratic governments in Italy and Greece after the democratic ones were deemed not good enough. It’s hardly new for governments to ignore the xenophobic or paranoid pratter of their populations to make hard decisions. EU integration has historically been one of those times, and will likely continue to be. The UK’s own euroscepticism is uniquely strong, and the EU project will continue happily even should they leave.

Peter Kelly Andy G I find that comment startling. Who deemed the Greek and Italian governments to be ‘not good enough’? For whom were they not good, the Greek and Italian people or the architects of monetary union? It’s not paranoid or xenophobic to be opposed to an economic policy that has plunged your country into an economic depression and led to a crisis in your healthcare so profound that malaria and tuberculosis are becoming endemic. Nor would it be xenophobic or paranoid for German voters to eventually decide they want to stop throwing money into a black hole. You can’t simply define these opinions as somehow beyond the pale and say that the EU will brush them aside – or rather, you can’t keep doing that for ever and not expect a backlash.

Andy G All the above, those groups are not mutually exclusive. I think you’d need to back up your statements following before tossing them around, it’s a uniquely British position to somehow exaggerate the faults of the EU and blinker themselves to its huge benefits.

Peter Kelly Andy G I aren’t blinkered to the huge benefits of the EU. That’s why I don’t want it to be undermined by the undemocratic and economically illogical means by which EU leaders are currently trying to save monetary union. I’m unclear which of my statements following require backing up, since it’s clear to even a casual follower of the news that Greece is in an economic depression, its healthcare infrastructure has been horrendously eroded, and that there’s no end in sight to its requirements for bail-outs. Observance of these facts isn’t restricted to those of us who are British; in fact, they’re apparent to not a small number of Greeks as well.

Andy G And you have yet to draw an adequate line between that and the depression and health crisis of Greece. In fact it’s arguable that the EU-orchestrated change of government is the best way to stop it

Peter Kelly Andy G That’s a matter of judgement. Even if the alternative is worse – and I have no doubt that it might well be – the Greek population aren’t going to accept being forced into an austerity-induced economic death spiral by foreigners for ever, and taxpayers in the core countries aren’t going to accept being forced to fund that economic death spiral indefinitely either. You’re assuming too much rationality on the part of the key players here.

@Andy GConsidering the average European electoral voter couldn’t tell us more than three facts about the EU at all I’m not nearly as certain as you are. Jan R That may well be the case, but it doesn’t mean that they are one of the key players in this particular instance nor that this is the case when extrapolated across several countries.

Peter Kelly Jan R well I have argued that Germany is much less powerful than many have argued. Yet, Germany is an important factor and since Merkel does not do anything that would diminish her reelection chances, you bet they (we) are a key player in things to come.

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